3 Things to do Before Letting a Financial Emergency Ruin Your Day
When a financial emergency hits, almost by definition it comes out of nowhere and can hit with the weight of a freight train. A car accident, getting fired, or a medical condition are all a devastating one-two punch of the emotional and physical ramifications, and then the financial hole it will burn in your bank account to fix it and get your life back on track. And just like a real punch, emergencies can leave you spinning and with your ears ringing.
For all these reasons it’s understandable that when we get hit by financial emergencies we don’t always react in the most rational and proactive manner possible. That being said, there are steps you can take in the immediate aftermath of an emergency that can help you minimize the damage.
The first step to minimizing the damage from an emergency is to assess the damage. Knowledge is power, and fundamentally it’s hard to fix something you don’t understand the full extent of. Even if just a quick five-minute assessment, take the time to understand what’s happening.
Without a clear understanding of what’s going on you run the risk of not only being unable to deal with an emergency effectively, but actually make the situation worse. If you haven’t looked you might zig when you should zag, or walk when you should jump.
Example: Say you get in a car accident. The first thing to do is to take a look at the damage to your car and document it with pictures if you can. Also important is to identify who’s fault the accident was, and quickly estimate how much money it will take to repair the damage.
Is it worth getting your car insurance involved, or better to simply make financial restitution out of pocket? The wrong answer could cost you in the long term if you’re at fault for the accident by raising your insurance premiums. The only way to avoid an unfortunate predicament like that is by knowing the lay of the land by taking a quick assessment of what’s going on.
Stop the Bleeding
Once you understand the full extent of what’s going on, the next step is to stop the literal, though more often metaphorical, bleeding and keeping the situation from getting worse. Just as it’s easier to stop one hole in a dam before it cracks into dozens, an emergency can often be nipped in the bud before it blossoms into a life-altering event.
Example: For medical emergencies it’s especially important to deal with it quickly and aggressively as they’re unusually susceptible to spiraling out of control. This can not only be expensive, but imminently life-threatening.
In fact, studies show that one of the reasons why medical costs are the leading cause of bankruptcies in America is because preventative medicine is so uncommon and most conditions are allowed to worsen in a misguided attempt at stoicism, or simply because people don’t have the money to go to the doctor.
Plan Your Next Step
Once the bleeding has been stopped, it’s time to plan what needs to happen next. This is an important step to perform early because it means you waste no time rebounding and getting back on your feet.
Example: If you lose your job, the first thing to do, after assessing how much money you have saved, is to figure out how long it’s going to last you. How long can you pay your bills before running out of money? How long do you have to find a new job? How much will it have to pay? Can I get a title loan if I'm unemployed? These are all important questions to answer and plan for.
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Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.